The past decade has seen rich-world countries throw increasing sums of money at the dream of renewable energy, in the hopes of rapidly weaning their economies off dirty fossil fuels. Though the goal has been motivated by a drive towards carbon reduction and resource nationalism, the results have been mixed.

While the pioneer of these efforts, Germany, has been successful to date in attaining 20 percent penetration for renewable power sources – largely through healthy demand-side subsidies – it is clear that its Energiewende or “energy transformation” is beginning to face political and engineering challenges. The enormous cost, combined with limits to solar, wind and grid technologies have given voice to critics and it is clear a moment of truth is approaching on whether the country will push forward with its gambit.

Other followers in the EU, such as Spain, Italy and France, have also instituted generous demand-side subsidies to incentivize firms to install wind and solar plants. Caught in the maw of austerity, these subsidies seem naïve and are being aggressively cut back.
Similarly in the United States, renewable energy subsidies have been pulled back to cut expenses for burdened governments, and may be cut further depending on the outcome of another messy election. Regardless of the wisdom for demand-side subsidies, the Solyndra debacle and the lesser-known Beacon Power flameout have made politicians wary of picking winners, especially those claiming a novel technology.

Half a world away, Chinese firms in the solar and wind space continue to capture market share, as a mix of low-cost suppliers and supply-side subsidies enables them to dramatically undercut the competition. Indeed, low-cost competition from China has almost put the once-mighty German solar industry in the ground. Yet even the Chinese manufacturers are struggling. For example, Suntech Power, the largest solar panel manufacturer in the world, lost $1 billion in 2011. Clearly something is wrong.

The broad problem – in the solar, wind, battery, LED and other renewables industries – is overcapacity born of over-generous subsidies. All of this supply needs somewhere to go; the solution is the developing world, and for once the problem is not lack of technology or supply.

However, the problem still remains cost. Despite the massive increases in capacity and subsequent subsidy cuts driving solar module prices down from $4/Watt to $1/Watt in three years – they are still not cheap enough for developing countries. Yet with innovative business solutions, such as leasing the panels and charging for power in sunny developing countries – as British company Eight19 is doing – these new technologies can become economically viable in base of the pyramid markets. (See a NextBillion profile on Eight19 here).

Combining several of these technologies enables firms like d.light to sell solar-powered LED lanterns that replace kerosene lanterns, providing healthier, cheaper light. Throughout the developing world, entrepreneurs are taking advantage of technologies developed by Silicon Valley start-ups or in the labs at the Fraunhofer Institute, and melding them with innovative business models that reduce, share or properly allocate costs.

Join our discussion at Columbia Business School’s 2012 Social Enterprise Conference on Oct. 5, as several investors, consultants and luminaries in the space examine some of the novel ideas being employed globally to provide essential services – such as power, water and light – to the world’s poorest. Also, enjoy a chuckle at squabbling politicians in the EU and U.S., who will wake up one morning and realize they have inadvertently powered the developing world.